|
> ... Is there any information to be gained by considering a combination of CDS + Bonds to generate a theoretical currency Fwd?
Haha, been reading Macro Man lately? |
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness... |
|
|
 |
dantes
|
|
| Total Posts: 103 |
| Joined: Apr 2005 |
| |
|
| I fail to see how using any market mechanism to arrive at a price would solve the problem with taking care of the savers in the right way. The problem is how the process to convert peoples EUR holdings to D-Marks in a "fair" way would work. And fair it has to be, otherwise political revolution. |
|
|
 |
|
There's not going to be a Euro break-up, at most some countries will be put in some sort of quarantine. Suppose they drop the Euro all together and they decide to exchange it back to the national currencies. Let's say they have the tech to do this overnight, it would still induce the mother of all bank runs in of the largest economic areas. People would scramble to exchange their national currency for whatever value store: USD, gold, silver, GBP, JPY, CAD, AUD. I think even RUB would do. An Argentina like scenario would be the closest to what could happen.
This said I do think that somewhere along the line the marginal cost of opting out of the euro for some countries might be very low compared to the possible benefits like e.g. a substantial devaluation of their national currency.
|
|
|
|
|
|
"I fail to see how using any market mechanism to arrive at a price would solve the problem with taking care of the savers in the right way"
@ dantes: I completely agree with you
By the way, I do not think that the euro will fall apart so easily because there are very strong political reasons that haven't been mentioned.
1)The euro gave European countries the power to contrast the dollar (you can disagree with that but it is the reality)....why on earth would UK,Germany,France and Italy pay for Greece,Irland,Portugal and maybe Spain?
2) Many middle east countries started to prefer euro to dollar for crude oil physical trading and other commodities
3)Germany is one of the biggest exporting countries in the world and one of the founder members of Euroland. The entire ECB phylosophy is based on the BundesBank way of administrating inflation and I genuinely think that Germany would be the least country to leave the eurozone
4)I don't think EU would drop the euro projet so easily.we are not just talking about a currency here , we are talking about political power
I know there are serious debt concerns and bond yelds are skyrocketing,HOWEVER, even the bankruptcy of one peripheral country could cause a further depreciation of the euro against the dollar but a complete break up is quite far from happening. |
WWW.HYPERVOLATILITY.COM |
|
|
FDAXHunter
|
| Founding Member |
| Total Posts: 8117 |
| Joined: Mar 2004 |
| |
|
Path Integral: There's not going to be a Euro break-up.
Yours! I'm looking left and right to find counterparties for this trade. Are you making a (one-sided) market?
Path Integral: at most some countries will be put in some sort of quarantine.
That would cause a break-up for sure and certainly THAT would cause the mother of all capital flights. Quarantine Greece? Good luck.
I think it's likely for Germany, France, Austria and the the Netherlands to opt out of the Euro.
If you're presented with the choice of paying a trillion Euro to a bunch of useless Mediterranean lazies, and/or Irish crazies... or going your own way with your own currency, I think the course is pretty clear.
Personally, I'm trying to put on a Euro break-up trade, as I think this can be done for very little carry and/or premium to risk. |
Salman Pushdie |
|
|
|
urnash
|
|
| Total Posts: 550 |
| Joined: Sep 2006 |
| |
|
| Others claim that the EU will have to move to a fiscal union (link) |
Jim Simmons is finalizing a c. 1000 page tome on Renaissance trading methods and is looking for a publisher. He was turned down by Wiley. They said he's taxing the attention span of their readers -- LongTheta |
|
|
|
So what will happen when the euro breaks up. Currently two scenarios have been suggested:
a. Core members like Germany opting out - this would end the euro project very soon.
b. Peripheral members dropping out for competitive reasons / not wanting or being able to adhere to ERM criteria. This could in theory leave a currency union of the core countries.
What would the effect be market-wise - what, where, when and in which way. |
The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought, and that’s sort of exactly the Mexican story. It took forever and then it took a night. – Rudi Dornbusch |
|
|
|
Kitno
|
|
| Total Posts: 146 |
| Joined: Mar 2005 |
| |
|
We will find out soon. The Spanish problem is too big to bail out. The trouble with Spain is the debt's in the banks not the sovereign so a sov haircut doesn't work. Given the intense political motivation - I think the first material stage is the ejection of Spain (and potentially Portugal - skipping a bailout) on an exeat pass to get their books in order in the next say 7 years. How about maybe even creating an interim Iberian currency union? And if things get worse, Italy can join too. These are politicians after all. The hope being the already bailed out countries & EUR survive. Alas, by then you've opened pandora's box.
Trying to look through the kaleidoscope eyes of a politican is a tough thing.
|
"Gentlemen, will you please decimate the bids?" |
|
|
baghead
|
|
| Total Posts: 815 |
| Joined: Sep 2004 |
| |
|
| Merkel is so heavily exposed to the first-to-forth loss piece and provides so much gap risk protection that the only sane thing to do is to increase correlation and delever. IMHO, that will result in a European Union 2.0, even against the will of peripheral members AND the average German voter. Members of the union will have to give up much of their independence in fiscal budgeting against getting a quasi-bail-out guaranty. I don't see a Euro break-up. |
|
|
|
|
|
| baghead: such an EU 2.0 would most likely require a referendum, and i see absolutely no chance that something like that would go through with the voters, at least not in Germany/Austria, and probably not even in the pheripherial countries. In some countires (i.e. Austria) the traditional parties are already with their backs against the wall, and such a proposition would give the nationalist/populist/random nutter parties a fieldday. I doubt the govt would even dare discussing that, much less backing such a plan. |
|
|
|
|
FDAX: not making markets, sorry. Just giving my view, which is worth as much as yours: 2 euro cents 
Not everybody can be like Germany, i.e. having a big trade surplus. If you export more than you import someone else has to be importing more than exporting. Let aside the reasons for which the euro area is in its current mess, you have to face up to reality. Reality is that a.o. the German tax payer will have to bail out the troubled sovereigns. To make your constituency swallow that takes time and most of all statesmanship. The dire consequences of a failed ccy union will be uglier.
I think that apart from more fiscal union, there will have to be more unification at the level of the labour market. Mechanisms that allow to bail out bankrupt states in the US are lacking, e.g. social security transfers from the federal to the state level. Also the mobility of the labour force is a lot larger than in the EU. So what will have to happen is that cheap labour will become an export product of the perifery. |
|
|
|
|
KangaXX
|
|
| Total Posts: 278 |
| Joined: Mar 2005 |
| |
|
Personally, I'm trying to put on a Euro break-up trade, as I think this can be done for very little carry and/or premium to risk
Come on then, now you have to tell....Ill volunteer a rubbish one (short BTP vs short cds, a redenomination event will not trigger cds but ur bonds are worth nothing however things could get complicated and it gets triggered, ur repo gets closed out, u need a balance sheet, if germany leaves euro it doesnt work, so i dont particularly like.)
What you want to do is commit to buy a german asset (the bund, dbr) in the future using euros which will not be considered deutschemarks. Given that schatz future is denominated in € maybe just being long a ton gives you the option but i think it unlikely that they would let that go through.... and they would probably change rules to phuck u. But any trade where you can buy german assets using euros borrowed in a different country not under german law might do it. |
Bright, energetic people—usually
quite young—have promised to perform miracles with “other
people’s money” since time immemorial. |
|
|
FDAXHunter
|
| Founding Member |
| Total Posts: 8117 |
| Joined: Mar 2004 |
| |
|
KangaXX: But any trade where you can buy german assets using euros borrowed in a different country not under german law might do it.
That's the plan. Borrow in periphery, deposit into Germany (wrapped in German entity). Use deposited Euros as visible collateral (so fully secured) for periphery loan. Wait for Germany to exit. Cost per annum: ~50 bps. Upside: probably 20-40%. You can certainly leave that trade on for 3 years.
Edit: Got a few inquiries pending with Greek banks. One of them declined because they are "state-owned" and they can't be politically seen in participating in trades that actively speculate to Greece getting thrown out of the EMU  Shucks. |
Salman Pushdie |
|
|
|
MadMax
|
|
| Total Posts: 406 |
| Joined: Feb 2006 |
| |
|
| Is there is a legal mechanism that allows states to get kicked out without them volunteering? |
|
|
|
FDAXHunter
|
| Founding Member |
| Total Posts: 8117 |
| Joined: Mar 2004 |
| |
|
No. But even if there was, they would just change the rules.
Maastricht is very clear on a number of things (debt/GDP, deficit/GDP). Almost every country violates these terms now, but there are no consequences. Greece never met the criteria (they fabricated their statistics, if you remember), but there were no consequences either.
EMU is not sustainable. It's really simple: You can't have a club (any kind of club) where people can consistently break all the rules. Then there is no more club. The only question is whether some countries will leave or whether the whole thing will slowly dig itself a deeper and deeper hole.
I'm betting on the former: people with something to lose will always have an incentive to protect what they have. Greece doesn't have anything to lose anyway, so they'll go along with whatever idiocy is proposed next. |
Salman Pushdie |
|
|
|
MadMax
|
|
| Total Posts: 406 |
| Joined: Feb 2006 |
| |
|
| I was always of the opinion that EU could make sense but not the euro, but then a lot of things don't make sense. |
|
|
|
KangaXX
|
|
| Total Posts: 278 |
| Joined: Mar 2005 |
| |
|
sounds like a nice trade, imagine v nice leverage too |
Bright, energetic people—usually
quite young—have promised to perform miracles with “other
people’s money” since time immemorial. |
|
|
|
amateur
|
|
| Total Posts: 123 |
| Joined: Mar 2010 |
| |
|
hurry up
11:00 26Nov10 RTRS-MAJORITY OF EURO ZONE NATIONS AND ECB ARE URGING PORTUGAL TO SEEK BAILOUT - FT DEUTSCHLAND
11:00 26Nov10 RTRS-Euro zone nations press Portugal to seek aid-paper
BERLIN, Nov 26 (Reuters) - A majority of euro zone nations and the European Central Bank are urging Portugal to apply for a financial bailout from a European rescue fund, Financial Times Deutschland reported on Friday.
Without revealing its sources, the paper said they were putting pressure on Portugal to seek aid in order to save Spain -- with its much larger economy -- from having to do the same.
The paper quoted a source in Germany's finance ministry as saying: "If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal."
The German Finance Ministry could not immediately be reached for comment on the report.
Many analysts believe Portugal will follow Ireland in seeking financial assistance from the European rescue fund, and there are fears that Spain might be forced to follow suit. |
“unnecessary complex models should not be preferred to simpler ones. However . . . more complex models always fit the data better” |
|
|
FDAXHunter
|
| Founding Member |
| Total Posts: 8117 |
| Joined: Mar 2004 |
| |
|
KangaXX: sounds like a nice trade, imagine v nice leverage too
Well the trick is getting the spread down. Ideally you'd borrow from a Greek bank at Euribor + X and deposit in Germany at Euribor-Y.
To get X down we need to get the counterparty very comfortable that there is in fact no risk. We can do that by:
1) Providing full visibility and access to the German deposit.
2) Over-collateralization. In addition to pledging the deposit itself, we can post additional collateral (we are cash rich at the moment).
3) Do enough size to get economies of scale.
We can get Y down to zero by doing enough size.
I think the key is to either be a German citizen or at the very least have a German SPV for this. You don't want to get caught in some separation between citizens and non-citizens. I think it's safe to say that should Germany decide to convert something, they will not screw their own citizens. |
Salman Pushdie |
|
|
|
KangaXX
|
|
| Total Posts: 278 |
| Joined: Mar 2005 |
| |
|
Depositing the money as a German citizen will probably help...given the way things are going you probably dont want to be classed as wholesale.
Incidentally the news that EU-IMF are looking at ways to potentially equitise seniors at irish banks is pretty good news for the euro area sovs. If sovs stop underwriting all banking risks then their solvency is considerably improved and the near term probability of euro break up is reduced. Long term of course Greece is screwed, and perhaps Italy too, and voters all round may just become increasingly anti euro, but for now it seems the champagne socialists are realising that taking on the market for a year and underwriting every possible risk reduces the chance of euro survival, so it appears they are rapidly moving towards allowing private investors to take losses so that the survival of the euro need not be questioned so readily.... |
Bright, energetic people—usually
quite young—have promised to perform miracles with “other
people’s money” since time immemorial. |
|
|
quantie
|
|
| Total Posts: 861 |
| Joined: Jun 2004 |
| |
|
I think a trade that looked interesting when mkts were calmer was something like this.. long protection on Greece in USD and short protection on Greece in EUR. You net paid some spread for the trade. It wasn't defined risk since you couldn't get recovery locks in place on both the legs. (seems like that mkt disappeared as well)
I don't think this sort of trade makes sense anymore on single names becos there may not be a 2way mkt in Greece CDS or if there is it is possibly wider than the Gowanus canal (plus it is all priced in perhaps). Also the market for Greece CDS in USD (quantoed) probably doesn't exist (it used to be by appointment).
But perhaps there is a similar trade using the SovX?
|
|
|
|
|
baghead
|
|
| Total Posts: 815 |
| Joined: Sep 2004 |
| |
|
a) you dont need recovery locks for that trade
b) cross gamma is a biatch
c) Greece CDS in USD is the original contract and the EUR one is considered the quanto
|
|
|
|
granchio
|
|
| Total Posts: 1416 |
| Joined: Apr 2004 |
| |
|
I am thinking along similar lines as kangaxx, though i couldnt disagree more with his choice of culprits (IMHO what's the champagne socialists got to do with it?... how about the banking lobbies? use occam's razor and "cui prodest").
At some point, the obvious solution will be the only one left to take. Restructuring of bad banks debt, letting seniors take the pain (in other words, default).
Much easier than to guarantee all of southern europe +ireland + belgium.
Yes the EUR will get weaker, but that is good for germany, and in fact for most of europe.
i do not see why germany should leave the EUR, as long as it controls it: which means controlling the ECB. Which IMHO will be a critical battleground.
That leaves 2 problems: Greece, where the state is bankrupt, not the banks.
The Greek bailout was organised to protect the german and french banks: but again, it is much simpler to restructure greece debt, hurt those banks senior debt, while protect the savers. the numbers are not huge.
The other prob is italy. that is something else, as the scale is mega. but IMHO it will take several years before it gets to critical stage.
|
"Deserve got nothing to do with it" - Clint |
|
|
|
|
I was discussing this the other day with someone...
Pls correct me if I'm wrong, but one of the issues with haircuts on senior bank debt is that senior creditors are pari passu with depositors pretty much everywhere. So, unless the legal frameworks change (which isn't gonna happen in a hurry), the owners of senior bank debt are sitting pretty. Obviously, if/when sh1t properly hits the fan, this won't preclude any restructuring that needs to happen, but, until then, this is a relatively significant legal hurdle. I am not 100% sure about this, though. |
Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness... |
|
|
KangaXX
|
|
| Total Posts: 278 |
| Joined: Mar 2005 |
| |
|
| sovs can pretty do whatever they want unless you invade them. This is especially true for local law instruments |
Bright, energetic people—usually
quite young—have promised to perform miracles with “other
people’s money” since time immemorial. |
|
|
|
